Is Capitalism Moral? (Reactions to a Video by Walter Williams)

Our upcoming episode #174 will be on Adam Smith's Wealth of Nations, and we've scheduled a follow-up (#176) with Russ Roberts of EconTalk, so I again have economics on the brain, and am trying to figure out exactly what rubs me the wrong way about pro-capitalist cheerleading apart from its obvious association with some pretty despicable elements in politics, given that I agree with the overall narrative that capitalism grows wealth and is hence responsible for our high standard of living, including the ability to podcast and enjoy many if not most of the things that we enjoy. (Note that Smith's picture does not by itself indicate lack of government involvement in this growth. Smith does not think capitalists "built that" by themselves, though there are plenty of government interventions in the economy that he objects to.) So as with my post on Penn Jillette, here's another stab at trying to figure out what I think using the stimulus of a reasonable-sounding pro-capitalist video, this time by Walter Williams, economist at George Mason University:

The moral sentiment drawn on here is a basic and widely held one: "You don't work, you don't eat." Now, using the example of mowing a lawn is a misleading way to present that because the unfairness objection to capitalism is based on the idea that capitalists qua investors actually aren't working. If I already have a lump of money, maybe I need only ask around or use the Internet to find an investment advisor with a good track record, and rely on that person's expertise to pick a project with a good management team, who in term pick qualified workers, and the workers and the managers (and the investment advisor) do the work to get me my profit, which I then, according to this picture, turn over to a vendor as a certificate of the value that I've provided to the community.

But of course, capitalism needs capital, so regardless of the fact that I didn't get sweaty mowing a lawn for my profit, I chose to invest that money and enable all this good to happen (in Smith's words, I supported productive labor) rather than burning my money or using it for direct consumer behavior like hiring someone to mow my lawn (which Smith calls supporting unproductive behavior; even though the person mowing my lawn is providing value to me, and my paying him in turn enables him to engage in economic activity that supports others, that has much less overall economic value than investing capital. Paying to mow is essentially creating something—short grass—that promptly disappears, instead of creating a good that can then be further recirculated to the overall increase of society's wealth).

So if we accept that greater overall wealth is a species of utilitarianism, i.e., that monetary wealth is a species of the good, even if not the only or best species, then the investing capitalist is earning what Williams in the video is calling a certificate of performance. Unlike many presentations of capitalism, this video is in particular concerned with desert: because of a moral act (helping others), we can see money qua certificate of performance as deserved.

Does it follow that someone who doesn't produce such a certificate does not deserve the fruits of others' labor? That those who haven't earned money don't deserve a share of society's resources? In light of consideration of the capitalist, the moral principle should no longer be formulated as "you don't work, you don't eat," but "if you don't provide value to others, you don't eat." The capitalist has provided value to others not in virtue of his work, but in some other way.

What is the value of culture? Of art and scholarship? If we're not simply defining value in terms of money, if we're open, as this video is, to making a moral argument to the effect that providing a value to the community creates a condition whereby the producer of this value deserves something, then there are many activities that create such desert, even if the market doesn't itself reward these activities.

There is plenty of precedent for trying to reward such behavior outside of the market. Adam Smith is pretty uniformly critical of these. In Book V of Wealth of Nations (Part III, Article II), Smith criticizes the educational system of his day as not providing enough direct value to people. University professors were teaching things like Latin and Aristotelian biology that were of no obvious use to most students, yet various social conventions forced any student who wanted to get into certain professions to suffer through this, and so subsidize the teachers who taught these subjects. Smith contrasted this with trade schools, which have to effectively convey the trade in question lest they go out of business. This sounds like the kind of argument Williams would approve of: It's moral that people get to vote voluntarily with their dollars.

But what kind of world would we live in if every bit of scholarship and art required a sufficient commercial demand to permit its production? How many artists have only been recognized after their deaths? How much basic research doesn't produce immediate economic payback, yet slowly raises our overall knowledge in ways that do eventually provide economic gains? Does every endeavor to, for example, preserve history need to be justified in economic terms, i.e., does there need to be some consumer willing to pay for that particular history to be supported?

Let's suppose I want to live in a world where the arts and sciences are supported. Maybe I should work to convince others that this is a good idea too, and we can voluntarily put some portion of our incomes into funding a university or other organization that will fund such endeavors in bulk. This much should be fine with Smith and Williams.

Maybe I'm very successful at convincing those in power that this is a worthwhile idea (and if this is truly a representative democracy, that means the majority of people, or if it's merely a republic like ours, then I convince the people's representatives or the experts that the people's representatives in their wisdom rely on). I convince them that these long-term gains are worth everyone's money, and so I get tax support for support for culture, or maybe I and my supporters successfully establish a custom exactly like the one Smith is objecting to where anyone who is to get a decent job must jump through some hoops that involve supporting some sort of educational/cultural-support entity, even though the scholarly work and art supported by this institution is decided by the professors and not directly by the paying students, or even the politicians involved.

Williams and Smith would say that this process in effect robs consumers of their voting power. For a "certificate of performance" (money) to be legitimately earned, it needs to produce something that individual consumers find valuable. A university selling degrees to accountants and lawyers and other respectable trades that bundles in a bunch of Latin and Aristotelian physics and modern poetry and studies into the diets of ancient Australians is like a shitty cable company that gives you the Home Shopping Network and the religious stations and the Golf channel along with the networks you actually want. Yes, there are some weirdos that want those selections, but not enough that they could possibly survive based on market forces alone.

So a humanities practitioner, as someone probably not able to make a living selling his services directly to people, is through his university/government subsidy effectively stealing from unwilling customers through both taxes and the tuition associated with socially required education. This sounds pretty morally dubious, but that depends on what moral calculation you subscribe to. A proto-utilitarian like Adam Smith (see our episode 45) would look at whether the benefits outweigh the inconvenience. He doesn't think that money is the only good. Though in the Wealth of Nations, he's concerned only with how various social measures might increase overall financial wealth, that doesn't mean that there might not be some good outside of such wealth worth also pursuing. If we could determine that some cultural activities were good in some other way than by what price they fetch in the market, then that might morally justify actions to promote their existence.

But, the pro-capitalist might respond, how can we determine if such activities are good? Who decides? Are there objective goods? One of the central ideas of Rawlsian liberalism is that people's ideas of the good differ, so society as a whole should remain neutral with regard to alleged objective goods.

The loophole here is the harm principle. Society is justified in outlawing actions that cause physical harm to others, and if one could unproblematically establish other types of harm, such as psychological harm, then one can act to prevent those too. The alleged harm in allowing all art, science, and other humanities sink to the level of pay-to-play would be that doing this allows society to sink into barbarism.

Who decides what barbarism consists in? Well, the experts in those fields: Humanities professors peer review each other, they have debates about whether that kind of philosophy is real philosophy and that kind of art is real art, etc. They're not perfect, and perhaps won't recognize a budding Van Gogh, and most likely the fact that they're already invested in certain traditions means that a lot of bullshit will continue to be supported. But I think one could make a case for a general, mandatory fund to support a wide range of activity of this kind.

Ultimately, it's not necessary that consensus be reached on what types of cultural activity are valuable. Critical theorists may think that evolutionary psychologists are full of crap and vice versa, but both may deserve our support. The important thing for me is that I want to live in a world where the life of the mind is alive and well, where the tedium of commerce does not eclipse much of what makes life worth living. So even if I don't "get" your intellectual or artistic pursuit, I support (not just in the abstract, but through monetary provision) your right to pursue it. You're pursuing what you find stimulating, but the invisible hand thus lifts up the overall level of the culture.

An objection Williams would make to what I've described is the "mandatory" element involved in supporting a cultural fund. Whether actually paid for by taxes or by de facto social requirements like the need for a certain kind of education to get a well-paying job, there's something coercive going on, and does the good that the cultural fund provides outweigh the oppression involved in coercion?

To a hardcore Libertarian à la Nozick (and this was the attitude I was reacting to in my past post about Penn Jillette), the coercion involved in taxation is a deal-breaker, but the fact that I'm grouping together with-a-gun government coercion with de facto coercion by social convention should indicate that I'm not looking to have that argument again. Any extreme rule-based morality ("All taxation is theft and hence evil!"), to be intuitively plausible, needs to be tempered with utilitarian sentiments (and vice versa!). My concern is with how much hardship people actually experience in being "coerced" in these different ways. A very low tax on a rich person, even though technically coercive (if you don't pay, you eventually go to jail), is just a bother. A very high level of inconvenience forced merely by social custom (to get a high-paying job you must have an expensive education, which you can't afford because your parents had low-paying jobs) can feel much more burdensome, and result in much more tangible suffering.

In considering taxation in Book V of Wealth of Nations, Adam Smith doesn't give a blanket denunciation of taxation as coercive, but considers what kinds and amounts of taxes actually dampen economic activity. An overall utilitarian calculus should tell us that if a certain level of coercive funding (by whatever means) produces more good than inconvenience it causes, then we should do it. Considering only the national bottom line in thinking about "more good" here is morally astigmatic. A utilitarian calculus must include all of the alleged goods involved, which of course includes not just economic and cultural ones, but environmental ones and probably spiritual ones; each type of good involves its own epistemic difficulties. (No one said social policy was easy!)

In an economy that's just getting off the ground, when the overall level of wealth is low, then perhaps a cultural fund is a luxury that society can't afford. But we now live in a wildly affluent society. We can afford to have a very liberal view of what might constitute value, of what activities deserve a certificate of performance. Just as a government can be oppressive, market forces themselves can be (metaphorically) oppressive. Instead of just asking "how small a government can we get away with?" so that as many of our resources as possible are used as capital to support "productive labor," we should also ask "given that we want to continue improving our standard of living, what burden can the economy bear to support goods that are not amenable to direct support by the market?"

I think that political theorists, economists, and philosophers should be exploring both of these problems, and then a rational political process should help us as a society reach a (temporary, to be renewed periodically) consensus on what percentage of our efforts should be given over to supporting a growing economy vs. supporting a cultural heritage, and exactly what means (taxation vs. de facto social duties) would be best brought to bear to support the latter. As is consistent with a naturalist moral theory like Hume's (and probably Smith's), it's up to us as a society, drawing on our moral sentiments and our experience over the centuries, to decide the most moral path: How many eggs should we put into the grow-the-economy basket vs. the grow-the-culture basket? Or can we figure out how to make the two interact in a non-zero-sum manner with respect to each other without simply making culture entirely subservient to market forces?

Comments

Rather than asking if capitalism is immoral, shouldn’t we ask if the ultra-free market capitalism proposed by libertarians is immoral?

Nordic societies are capitalist, but capitalism there is regulated by the state. Profits and high incomes are duly taxed. Healthcare insurance is provided for everyone as is higher education, and cultural activities are subsidized by the state.

That seems like a moral alternative to me. I see healthcare as a human right and one that the state should provide for everyone, independent of their ability to pay and any society that violates human rights is immoral.

While I don’t want to diminish the value of this analysis of the moral worth of capitalism, I think, like so much in political philosophy, it leaves out a key ingredient. I’d even go so far as to say THE key ingredient. Namely, what kind of person do we want our society (and therefore its institutions) to create (i.e., promote and foster)? That is, what education do we want our children to begin life with? There are so many existential questions that follow from this initial question about education; the socialization of young people into flourishing persons is complex beyond any technical field. Only after these questions are answered can we begin a productive discussion of what the “state” is and should be, what economic arrangement best suits the people we want to be, and what role the arts play in the organic culture that develops as we live out the personhood that education shapes. We are all of us products of a quasi-liberal education. But liberal education keeps getting re-defined (de facto). And, in some cases, as been defined away, for good or for ill. But the point is: shouldn’t we have a clearer notion of the kind of education we want to give our children and the most effective (never mind ‘efficient’ — human beings do not respond healthily to efficiency when it come to being nurtured) way to give it? In other words: shouldn’t we know the kind of person we want to people our world? Why must we leave this up to chance? Why do individual uneducated, half-educated, over-educated parents get to answer this question? They’ve made a mess of it so far. And yet, we don’t even talk about who SHOULD be answering these questions, do we?

There is a central paradox in the ultra free market capitalist framing that people rarely notice, or at least rarely take the time to point out. That is that the Fundamental Wellfare Theorem actually requires economic equality to be functional, it actually assumes it, and yet trading of capital for work will not produce this, and it doesn’t need stating how this compares to what happens in financialized economies.

Along with this there are the myths of the consumer preference: ie that consumer preference is exhibited by money spent and that consumer preference is rational. You can look at marketing as an example. Good marketing does not improve public contentment and happiness, in fact it is designed to make you dissatisfied for not having a product and/or produce a negative-sum competition between equivalent products.

There is also the fact that classic capitalism simply does not account for externalities. It is a known and accepted hole in the theory which classical capitalists filled with government intervention. Most of these anti-interventionists either end up sticking their fingers in their ears in some weird form of denial or flat out decide that the market is magical and does that anyway for – no real reason, just because…

Above these I personally have no idea why we think “make people work so I can get a Mercedes because that is ‘fair'” is somehow meant to be morally superior to “we can feed everyone and make them all happy so lets do that and encourage work for perks on top of that” like we see in most social democracies. It actually blows my mind that people think that is even vaguely acceptable. If someone falls over you help them back up, just because the government is in the middle doesn’t somehow make it heinous.

Last but probably most importantly of all there is actual empiricism, you know, that thing you are meant to do to call yourself a science? There are a bunch of empirical economists and the data has just exploded due to new techniques, larger focus and higher quality research. The empirical data simply does away with the idea that government intervention in markets, taxation, wellfare, or arts and science funding are bad for an economy. In fact the evidence is strong in the other direction for some of these points (wellfare, arts and science funding) and strongly in the “little-to-positive-effect” category for the other two. The evidence is AGAINST this model! Many many economists are talking seriously about evidence and are doing amazing work, but there is this large (often older) part of the cohort who just don’t care. Theorizing in armchairs and coming up with cute little predictions was all well and good when you couldn’t do it better but now we can, in fact we have, and because people don’t like being wrong they don’t let themselves be convinced no matter the evidence.

Greetings, Mark. I always enjoy it when you guys take on the philosophy and normative value of classic liberal economics. And while I am largely sympathetic with your arguments here, allow me please to play a good-faith devil’s advocate.:

Our Western European state peers give more formal government support for the protection and nurture of indigenous cultural institutions and industries (like film, public television, wine & beer production, etc.), which you – at least in part – argue for here. In the U.S. by contrast, this public policy arena is much more politically-contested, and a source of continual debate about the fundamental nature and role of government. What’s more, skeptics of the utilitarian value of culture and scholarship will say that, since U.S. culture is already dominant globally, and because we possess a handsome portion of the globe’s leading academic and scholarly institutions, the federal government arguably doesn’t need to fill this role anyway, even if we conceded it were theoretically-merited.

What say you to this? To the, let’s call it, ‘superfluous value’ argument?

Second, if we were able to overcome objections to what I’m calling superfluous value, what would that look like from an American cultural standpoint? (Or is this besides your point? You merely purport here to point up the philosophical superficiality of Williams’ argument.) Some might argue that what’s uniquely ‘American’ in culture is that heightened celebration of providing strict economic value (i.e. dollars and cents’ utility) to others. That is to say, to be American (broadly speaking) is to cheer on novel ways of making more money! For money’s sake alone… To consume more… to demonstrate the ability to consume.

Perhaps that’s too cynical a view. Americans can claim credit, after all, for inventing jazz, the blues, cowboy literature and film, and maybe a couple other niche art forms. But isn’t it really economic prosperity, and the freedom to pursue as much, that such a large and heterogenous population as ours jointly holds in common? And to do so without ‘cultural elites’ telling me what it means to be “Murican?

Or is your normative point more directed toward the contemporary educational costs and barriers to being a comfortable member of the middle-class and labor market? In which case, anecdotal evidence suggests that this is not lost on American colleges and universities (at least all but the most elite ones), as they are all going to greater and greater lengths these days to treat their students as rational utility-seeking customers, constantly seeking feedback and dressing up their institutions with buzzers and bells to steal tuition dollars from competitor institutions.

Having a well-rounded liberal arts education seems less and less sellable now, but you can’t blame academic institutions for not trying, in a hghly-free market fashion, to deliver to skill-seeking consumers precisely the most efficient package of education they need or think they want.

I remember visiting your PEL crew’s grad school stomping grounds (University of Texas-Austin) several years ago in the Oughts, and – as another big state university patron and graduate – being blown away by the resort-like accommodations they had built for their student body population, presumably to grow their already huge consumer base. Well, I’m five or so years younger than you all, and graduated in the late 1990s. The difference between what existed at a well-funded state university in my time, and what was being afforded less than 10 years later, was really revealing.

It’s really a shame that the most earnest defenders of market orders are libertarians, who tend to be value monists, obsessing about violent coercion while ignoring the fact that private property itself involves coercion.

A far better political/ethical basis for defending the market order is something like the capabilities approach. 1) The market, business, and commerce constitute a valuable domain for human agency and self-development. Market activities are intrinsically valuable, though they do not automatically override other important values and functionings. 2) Growth-oriented market institutions enable greater and greater human capabilities, understood not just as narrow GDP growth but as greater health, wealth, opportunities, etc. Access to growth-oriented market institutions is a kind of “fertile functioning” that facilitates other valuable functionings and capabilities. 3) This only works IF these institutions are understood to be for the benefit of all individuals, and regulated to function accordingly. Thus property rights are defeasible for public purposes, not as a compromise or concession, but by their very purpose.

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